Despite visible improvement in macro economic
fundamentals, growing reserves and shrinking deficit during the last 2
years, private investment, both domestic and foreign, has nt picked-up.
Why it is so is a question, which is worrying both the economic managers
of the Pakistan as well as donor agencies.

The first action taken by the elected Prime Minister
is the constitution of a committee to formulate investment policy to
suggest prompt measures to restore the investors confidence and improve
investment climate. Talking to journalists after presiding over a
meeting here at the Board of Investment (BOI) the Minister for
Industries and Production, Liaquat Ali Jatoi said that the Prime
Minister will head the committee, while he will be its vice chairman.
The member of the committee will include the Ministers for Finance,
Commerce, Information Technology and Privatization, along with
provincial governors and private sector representatives. "We will
try our best to create investment-friendly environment which is
necessary to attract foreign as well as local investment much needed for
industrialisation in the country," Jatoi said, adding that Pakistan
was a country where the rate of return on investment is highest in the
region and he hoped that the government's efforts in this direction
would be fruitful.

This crucial question of investment was also raised
in the World Bank policy development review of Pakistan, for the year
2002. The report had identified various impediments, like inconsistent
policies, law and order problem, high interest rates and low levels of
public development spending. It also suggested an action plan for
troubleshooting the ailments.

According to World Investment Report 2002,
Pakistani's potential to attract FDI has improved marginally form 141
points in 1990 to 159 points in 2000, but her relative performance to
secure FDI has reduced substantially from 6 points to 2 points.
Pakistani's position in the world ranking of 140 countries is 114th in
terms of investment potential and performance. Seen in the context of
the size of the country, population and economic potential, improving
these indicators of investment is a real big challenge.

Equally big challenge is investment in the public
sector by the government. Over a period of time, it has declined to 3.3
per cent of GDP in the year 2002. Three years' (1999-2002) average of
FDI is $406 million. Domestic private investment during last financial
year was Rs.30 billion against a target of Rs.96.7 billion. This year's
target is nearly the same. These statistics reflect a pathetic state of
investment.

Investment in Pakistan has also much to do with the
region in which it is placed and the relations it has with the
neighbouring countries. Trade with India is seriously constrained
because of political reasons. Afghanistan's war-like scenario spread
over the past two decades sends negative signals for investment in the
neighbouring Pakistan.

Economic relations with Iran have not gained enough
strength and momentum, because of the foreign policy factors; Pakistan
pursues a pro-western and pro-Washington foreign policy, which is hardly
liked by Iran. Such sentiments create barriers for economic co-operation
and investment. Lack of harmony among regional states also deters
investment. India like Pakistan has not succeeded to attract FDI in a
big way.

According to World Bank report, South Asia, during
the 90s has shown modest increase in DFI. It accounted for less than
half a per cent regional GDP during 1990, compared to 2.7 per cent for
East Asia, 1.9 per cent for Latin America and 1.4 per cent for
Sub-Saharan Africa. South Asia also had the lowest ratio of FDI to gross
domestic investment roughly four times less than those found in East
Asia, Latin America and Sub-Saharan Africa". South Asia's share of
total FDI during the 90s to the developing countries was less than 2 per
cent, whereas other regions had managed to increase in their share of
FDI from the world-wide pie which increased from $52 billion in 1980 to
$171 billion in 1992, and to $360 billion in 1997. By the end of last
year, it had increased to $678 billion. These figures show how South
Asian region is handicapped to benefit from FDI that takes place across
the world in such huge manner, mainly because of inter-states conflict
and conflicts within the societies and polities, the report pointed out.

The Minister for Industries and Production said that
the committee appointed by the Prime Minister will soon submit an
interim report for immediate implementation. He said that the target
sectors for investment will be agriculture including agri-business,
livestock and dairy farming and fisheries, oil, gas, mining, energy, IT
& Telecom, software, cell phone, e-commerce; SMEs including value
added textiles and leather, engineering, electronics, sports surgical
goods, furniture, gemstone and jewelry and chemicals. Jatoi also said
that investment in infrastructure including airports, highways, roads,
bridges, urban mass transport, water supply and sanitation will always
remain a priority. There is huge scope for investment in tourism
industry.

Continuing he said that the foreign investors will be
provided one desk facility at the Board of Investment (BOI) to help
resolve their problems at one place. Under this facility, the officials
of all relevant departments like WAPDA, petroleum etc. will be available
at one place to facilitate the investors. He said it has been decided
that an investment officer will be deputed with every foreign investors
to help resolve their problems, and remove the hurdles and bottlenecks
in this respect.

Investment climate is a dicey expression. It depends
upon the perception of investors about the investment opportunities
prevailing in any country that ultimately helps them to decide about
investment. There are ground realities and subtle economic indicators,
such as stability of national currency vis-a-vis US dollar, state forex
rules that regulate flow of capital and earnings on investment,
infrastructure, volume of economy and its growth, volume of exports and
return on investment which attract investors. But, equally, and may be
more, important than these indicators are invisible factors that play
vital role in attracting the investment.

US Secretary of Treasury, during his recent visit to
South Asia, raised an important question related to investment in New
Delhi: Why does India attract an investment of $4 billion per year
against $40 billion attracted by China. There could be a number of
factors affecting the investment in both the countries. But the US
Treasury Secretary was emphatic to highlight one of the causes of
difference, which according to him was that China honours the contracts
and abides by the agreements, whereas India looks the other way. Abiding
by the contracts and agreements is vital to attract investment and keep
investors' confidence intact. It consolidates it further. Pakistan, like
India needs to improve in these areas. IPPs during 1998-2000 were
subjected to strict scrutiny by the ML (N) government and the army-led
government. It must have shattered the confidence of investors. How far
have we retrieved the loss of confidence since then, is difficult to
quantify.

Political stability, one window operation to
facilitate investment, economic governance at micro-level, particularly
of these government officials who are tasked to provide utility services
like water, electricity and gas to investors work force and its attitude
towards investors and increasing production, bureaucratic attitude of
policy-makers who directly deal with investors are some of the important
factors which help substantially to build investors' confidence.
Pakistani needs to improve in all these areas. Hopefully, the government
will pay due attention to these factors.